Robert Willott on his book Between the Balance Sheets

Can you tell us about your career in accountancy? I trained and qualified with a medium-sized firm in the West End of London, where I became a young partner. One day I saw an advertisement for an editor for a new weekly financial news magazine and wrote to enquire whether I might be able to write a regular column on accounting topics, as I had developed an interest in writing as a hobby. To my surprise, I discovered that the ‘financial news magazine’ was actually called Accountancy Age. However, it was being launched very quickly and had no staff with any accounting knowledge. After a week of pressurised negotiations back and forth, I was persuaded to join as prospective editor. Over the next seven years, I became a publisher of several Haymarket titles and a board director. Then my wife was taken ill and I decided to change my career to something more sedate and joined the technical directorate of the Institute of Chartered Accountants, where I eventually became technical director. From there I moved to Spicer and Pegler as a partner. In due course, I persuaded the firm – which had an enviable client base in the City of London, as well as a national and international network – that it would benefit from setting up an office in London’s West End that specialised in the marketing, entertainment and professional sectors. That was a wonderful experience, but came to an abrupt end when the firm merged with Touche Ross (now Deloitte). So, I declined the offer of a partner promotion at Touche Ross. However, the West End continued to beckon and I decided to set up a new firm there in partnership with Kingston Smith. I remained there until I felt it was time to retire, after which I accepted several non-executive directorships and launched a financial newsletter focussed on the marketing industry, called ‘Marketing Services Financial Intelligence’. I was also able to accept an invitation to become honorary treasurer and a trustee of the Save the Children Fund. What is Between the Balance Sheets about, and why did you feel it had to be written? The book focuses on about 30 companies (mainly British, but some overseas) that I had first studied and written about earlier in my career, both for Accountancy Age and Marketing Services Financial Intelligence. I had developed a keen interest in accounting practices and analysing financial reports, drawing nuggets of interesting – and sometimes contentious – information from doing so. Each company in the book offered lessons on both the commercial management of businesses and on the financial reporting involved. I wrote about the collapse of Pergamon Press and subsequent sale to academic publishing giant Elsevier in 1991. I thought it might be useful to pull all of the case studies together into a single volume, and that is what I have done. In doing so, a number of common themes emerged that led me to argue for changes in the current regulatory framework. All of the 31 chapters depict stories of companies I’ve analysed over the years and offer lessons to others, in terms of how they might want to manage their businesses in the financial context. This endeavour also required a permanent sort of collection, which is hard to achieve in a newsletter or in an online publication, and is not quite achieved in the same tangible way that you can with a book. When I started writing it all down in a book, I gave each company its own chapter and gave some background setting to what had been happening originally, concluding with what happened afterwards. Some cases sadly failed, while others merged with bigger companies and others went on to have prosperous futures. In quite a few cases, there was evidence of either shortcomings in commercial management or contentious aspects in accountancy; I reckon the book has a dozen or so specific examples of what I regard as unsatisfactory regulations of companies, so you could summarise it by saying the book tells stories of various companies’ experiences, which should be quite instructive (I would hope) to others. It also highlights some of the areas of regulation, which in my humble opinion, could benefit from some further attention. What was your writing process like and how did it evolve? (Did it turn out as you expect or were there any surprises?) Believe it or not, the core content of the case studies was researched and written over a period of some 50 years! That in itself is interesting insofar as a number of weaknesses in financial management repeated themselves over that period, not least the apparent inability of some entrepreneurs to recognise that they have a duty beyond building a business empire that satisfies their own ambitions. Early in the book, we read about how Robert Maxwell’s personal companies traded with the publicly listed Pergamon Press in a manner that helped prop up Pergamon’s profits and balance sheet when those transactions lacked very little substance. We also learn how, in Canada, Miles Nadal built an empire that he milked to satisfy his own personal whims. But it would be wrong to imply that every company in the book was the victim of entrepreneurial self-interest. I think when it came to writing the book, I had previously written a lot of stuff in magazines and I wanted to create a fairly permanent collection of those analysis pieces. In itself, it sounded quite nice to me to have it on my bookshelf, but also, I hoped it would be of use to other people who are practising accountants or trying to run businesses. In your opinion, why do the proposed changes to UK company law fall short of what is needed to improve accounting standards? Company law still allows too much room for some company directors and owners to behave as if their business is entirely their own affair, without regard to other shareholders, creditors or the wider public interest. This type of behaviour is particularly problematic where a public company is involved, as was exposed at Pergamon Press and elsewhere. Some changes in law followed, but the situation remains unsatisfactory. For example, there is a need for improved disclosure of the financial benefits derived from related party transactions, especially where companies are under common control. And there should also be a regular review of questionable accounting ”devices” if they appear to serve the self-interest of a particular party. Company law is not regarded as important to politicians unless flaws are spotlighted by a public scandal that might impact on an election. Generally, company law is not a vote-winner and takes up parliamentary time that may be regarded as better used on topics that will affect the political fortunes of the incumbent government. I remember that, while I was at the Institute, we were able to put together a bundle of powerful evidence derived from various high profile investigations into company scandals by eminent accountants and lawyers. That material was taken into account in subsequent legislation. Sadly, such investigations are rarely carried out these days, whether on account of cost or fear of political criticism that might ensue. More recently, when I delivered the examples of shortcomings identified in my book, the government refused to indicate whether or not it was minded to act on any of the matters, saying that to do so might give publicity to the book. Not the most convincing of justifications! What other regulations do you think are in need of reform, and why? I am concerned about how some international accounting standards have become unduly influenced by a somewhat academic approach. I have written at length about the misleading requirement to treat deferred acquisition payments as if they are remuneration where the payment obligation terminates if the vendor ceases to be employed before the end of the earnout period. There is also the distorting effect of treating the grant of put and call options over minority shareholdings as if those shares were just a part of the initial majority purchase. As a result, the potential cost of acquiring the minority is assessed each year and changes in value are reflected in the reported profits of that year. Consequently, reported profits can fluctuate wildly from one year to the next. Why resort to such a barmy practice? Another distorting feature of financial reports is the practice permitted among public companies by the Stock Exchange of promoting an alternative definition of profit – called “headline” profit - as if all exceptional, non-recurring or otherwise inconvenient items had never occurred. This practice of ”as if” accounting needs to be stamped out. Have you got any other projects in the works? I’m not as young as I was. When you’re 81, it’s probably not very wise to do too much, but I’ve been involved for quite some years in the heritage of the Cotswolds village I live in and I’ve also written a couple of books on that matter. I have another I am contemplating on doing, but at the moment, I’ve got no plans for anything accounting related.

Robert Willott on his book Between the Balance Sheets

Robert Willott has studied the corporate financial reporting practice of over 30 separate companies with the aim to identify shortcomings and encourage debate on how accounting regulations might be improved

Can you tell us about your career in accountancy?

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